for full article kindly read the blog

http://stocklearners.blogspot.com/2007/07/risk-management.html

RISK MANAGEMENT
Define the risk per trade. The loss should be limited to risk bearing
capacity. Trading call recommendation can go right or wrong. The
performance is dependent on market conditions on a particular day.
Volatile and choppy market on intra-day can take off the stop loss. In
this process a trader must not incur larger losses. If the risk per
trade is defined then the loss will be limited to the risk defined.

Example
If a trader is willing to loose per trade Rs 1000/-. Then the
recommendation is as follows:
Buy X stock at Rs 100 Stop loss Rs 98
Difference of buy price and stop loss = Rs 2/-
Amount Willing to Risk or Amount willing to loose per trade= Rs 1000/-
How much volumes to trade= Amount willing to loose divided by the
Difference of buy price and stop loss= 1000/ 2= 500. The volume that a
trader can trade in the recommendation is 500 shares.
In this case if the recommendation fails on account of stop loss
violation the loss is restricted to Rs 1000.

DO NOT OVER COMMIT YOUR VOLUMES WHEN TRADING

Example
The loss bearing capacity is Rs 1000 but a trader has done volumes of
1000 shares. That means effectively, if the stop loss is violated then
the loss, which a trader can incur, is Rs 2000/. This means the loss
bearing capacity is Rs 1000 per trade and the risk undertaken is Rs
2000/-

for full article kindly read the blog

http://stocklearners.blogspot.com/2007/07/risk-management.html